The Baucus Plan: State Insurance Regulation, National Plans

One of the big questions with insurance offerings is who regulates the plans, and how. Currently, regulation is done at the state level. Republicans don't like this, and neither do Democrats, and neither do insurers. It means every insurer needs to offer different plans in every state. Fragmentation and inefficiency, thy name is America's health-care system.

Republicans want insurance companies to be able to sell across state lines, using the regulations of the state where they're based. This is pretty much what happens in the credit card industry, and it's why most companies are headquartered in South Dakota: The regulations are virtually nonexistent, allowing for all manner of chicanery.

Democrats, conversely, want the regulations to be federal in nature. One single standard that all plans have to meet. Baucus's bill allows for both.

To satisfy the Republicans, Baucus creates "health care choice compacts." These are agreements between different states to allow insurers to sell across their lines. California, Nevada and Wyoming, for instance, could form a compact, and insurers based in Wyoming could sell a product conforming to Wyoming's regulatory standards in all three states. The voluntary nature of the compacts is important here: California presumably wouldn't want to partner with Alabama, as that would junk all the regulations they've built over the years.

To satisfy the Democrats, Baucus's bill allows for the creation of "national plans." The bill directs "The National Association of Insurance Commissioners (NAIC), in consultation with consumer groups, business interests, including small businesses, the insurance industry, federal regulators, and benefit experts" to create a uniform set of benefit standards that insurers would have to meet to offer a national plan. Once met, that plan could be offered in every state, as it would preempt state regulations. Presumably, that plan would also have more bargaining power and substantial efficiencies of scale, as it will be national, rather than confined to a single state. This could prove seriously transformative in the private insurance market.

How do the other plans compare in regards to "national plans"? If I've been reading your posts about this correctly, your feeling is that having access to a very large risk pool... like a national plan or exchanges open to everyone... is the key to keeping administrative costs down and having leverage to dictate how much you are going to pay doctors and hospitals.

If you could throw in the requirement that these national plans be non-profit, that seems like a solid step in the right direction... though I'd like to see it before 2022 or whatever.

Ezra, this is so interesting. You and others have been saying, correctly, that there is a lot more to health reform than the public plan. The reform described in this post is an example. It is incredibly important and will have huge impact. Moreover, I have not heard or read one word about it until now (OK maybe I missed a few things?). Interesting.

Presumably, that plan would also have more bargaining power and substantial efficiencies of scale, as it will be national, rather than confined to a single state. This could prove seriously transformative in the private insurance market.

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not necessarily ezra. For example if the national plan was more comprehensive than the state plan in Alabama the economies of scale garnered by the size of the national plan would be lost in the lesser mandates (assumed) of the state plan. For example, you could buy coverage without maternity benefit for a company of 5 employees who were all single men on the state level plan but the national plan would have that benefit but no one would use it.

To heavily paraphrase another comment "Although [State Governments] have often contended with demands to eliminate or restrict access to [services], any [such] management decision by a particular community affected only that community. Here, by contrast, if [the Federal Government] bends to political pressure to remove a [service], it will suppress access to the [service] throughout the entire country."

As a counter-example, ERISA implemented Federal law which trumps all State laws, with negative results for most involved: under ERISA, it is no longer possible for an empathetic state to enact laws which better protects its citizens than does Federal law.

Is Baucus' plan intending to get rid of ERISA preemption too? Regional compacts won't do a whole lot when states aren't able to regulate employer-funded plans, ESPECIALLY given the way Baucus doubles down on employer-based coverage.

If every employer in the country can just switch to a self-insured plan and effectively avoid all insurance regulations while ALSO getting incentives, why would they ever choose regulated (and more expensive) fully insured plans?

Although it would be nice to get those national level pools (and let's be honest, the trend in the US is arguably towards more national consolidation, not less), they do have some problems. The US has significant regional and state-by-state differentiation on things ranging from doctors' compensation to other areas.

A wholly federal system runs the risk of creating serious problems on the ground. That's why I'm honestly more in favor of federalized systems, like Canadian Medicare.

as long as the federal law is a solid one covering everything that needs to be covered then there's no issue with the federal law trumping state law.

And every employer in the country can't self-insure just to avoid state regulations due to ERISA's laws. Most insurers won't talk to you about self insurance until you're 100 employees and even then there are substantial risks that you probably shouldn't take. That effectively takes out a large chunk of companies.

That's a fair point, but even with that practical limit on self-insurance the ERISA preemption structure still leaves a substantial number of employees in limbo, doesn't it?

It just seems like the jurisdictional split over mandated benefits is a major example of the kind of inefficiencies plaguing our system -- two businesses sitting next door to each other may have vastly different coverage responsibilities (with the larger, more successful of the two, obligated to cover fewer conditions). It seems goofy to let an opportunity like this go without rationalizing that system.

who says the larger employer is more successful? How successful is AIG now in comparison to a smaller, niche market type insurer?

I agree that the playing field should be level but we need to make sense of the mandates before we make them level. For example, the reproductive endocrinologists in NJ (and other states i assume) lobbied and got a mandate that required employers with over 50 employees to cover infertility coverage. 2-50 is exempt as are self insured plans (via ERISA). That's not fair to the 50+ market but its not necessary at all. its not medically necessary.

A law was put forth in the NJ assembly (ironically enough by a state senator from the Atlantic City area) that would have required gambling addiction be covered under health insurance. I don't believe it passed but its that kind of thinking that we need to cover everything under the sun under health insurance that is a large driving factor in cost and people dont' realize it.

Heck why not cover your baby's formula under your health insurance. Oh wait, in NJ they already do. That is if the baby had tried several formulas that they were allergic to and could only go on a special formula that "cost a lot".

At some point we need to say enough is enough with mandates just like we need to do it with earmarks.

There are problems with inter-state purchase of insurance that go way beyond lax state regulation and the South Dakota of health insurace. Right now, state insurance commissioners have a great deal of discretion in regulating insurer capital reserves - and they use their knowledge of the state insurance market to exercise this discretion. Once you have inter-state purchase, this system falls apart, and you end up with no effective way to regulate insurer risk.